Hermes moves into European direct lending

Hermes Investment Management has set up a European direct lending fund, following the success of its UK direct lending fund in 2016.

The European direct lending fund aims to deliver stable returns from senior secured loans (SSLs) to middle market companies in the UK and Europe, particularly Scandinavia, Germany, the Benelux region and Ireland. The SSLs are to be generated through partnerships with Danske Bank, DZ Bank and KBC Bank, alongside an existing mid-market agreement with the Royal Bank of Scotland. In addition, Hermes said it will use its network of contacts at private equity firms, banks and borrowing businesses across Europe.

The fund will be managed by head of private debt & CLOs, Patrick Marshall, who said: “By focusing the fund on attractive, senior-secured loans in the mid-market space, we can ensure there are strong creditor protections in place. Our aim will be to consistently outperform for our investors by lending to quality, growing businesses on terms seeking capital preservation and yield capture.”

Direct lending has become increasingly popular as a means of obtaining higher yields among institutional investors, in the face of low bank rates. Marshall added that as well as strong returns, direct lending could add diversification and stability to portfolios due to its uncorrelated nature and low mark-to-market volatility.